LABETTE COMMUNITY COLLEGE Parsons, Kansas Independent Auditors Report and Financial Statements with Supplementary Information For the Year Ended June 30, 2017
LABETTE COMMUNITY COLLEGE Parsons, Kansas TABLE OF CONTENTS PAGE NUMBER Management s Discussion and Analysis i - vii Independent Auditors' Report 1-3 Financial Statements: Statement of Net Position 4 Statement of Revenues, Expenses, and Changes in Net Position 5 Statement of Cash Flows 6-7 Notes to Financial Statements 8-26 SCHEDULE NUMBER SUPPLEMENTARY INFORMATION: Combining Schedule of Net Position Primary Institution 1 27-29 Combining Schedule of Revenues, Expenses, and Changes in Net Position Primary Institution 2 30-32 Schedule of Revenues, Expenditures, and Changes in Unencumbered Cash - Budget and Actual (Regulatory Basis) With comparative Actual Budget Basis Amounts for the Prior Year: All Budgeted Funds - Current Funds Unrestricted General Fund 3 33-34 Post Secondary Technical Education Fund 4 35 Adult Education Fund 5 36 Auxiliary Enterprise Funds 6 37 Capital Outlay Fund 7 38 Schedule of Changes in Assets and Liabilities All Agency Funds Primary Institution 8 39-40
LABETTE COMMUNITY COLLEGE Parsons, Kansas TABLE OF CONTENTS (Continued) SCHEDULE NUMBER PAGE NUMBER Auditor Information Sheet 41-42 Schedule of Expenditures of Federal Awards 9 43 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 44-45 Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 46-47 Schedule of Findings and Questioned Costs 10 48 Schedule of Resolutions of Prior Year's Audit Findings and Questioned Costs 11 49
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Management s Discussion and Analysis Introduction: The following discussion and analysis of the financial performance and activity of Labette Community College (The College) is to provide an introduction to and an understanding of the basic financial statements of the College for the year ended June 30, 2017, with selected comparative information for the year ended June 30, 2016. This discussion focuses on the current activities, resulting changes, and currently known facts. This discussion should be read in conjunction with the College s basic financial statements and the footnotes to those financial statements. The College is solely responsible for the completeness of this information. A separate audit is issued for the Labette Community College Foundation and Alumni Association. Using the Annual Report: The audit is conducted in accordance with auditing standards applicable to financial audits contained in Government Auditing standards, specifically GASB 34/35, issued by the Comptroller of the United States. The purpose of GASB 34/35 is to make the financial statement presentation of public entities more closely resemble or emulate that of nonpublic for-profit enterprises. The hope is that it will enhance the understandability of the general purpose external financial reports. To that end the annual financial report will include basic financial statements and required supplementary information. Basic financial statements are comprised of two parts: 1. Basic Financial Statements These include Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; Statement of Cash Flows. These statements present the results on a single measurement focus and basis of accounting. 2. The Notes to the Basic Financial Statements are an integral and essential portion of the financial statements. Required Supplementary Information: Management s Discussion and Analysis (M D & A) - This is information that is required by standards to be presented, but is not part of the basic financial statements. Highlights to the Financial Statements: Labette Community College completed a solid performance for the fiscal year ended June 30, 2017. At year end, the College s total assets exceeded its liabilities by $14,689,285. Of this amount, $3,986,434 is classified expendable or unrestricted net position. These unrestricted assets may be used to meet the College s ongoing obligations. For 2017 net current position (current assets less current liabilities) decreased $220,042. The coverage ratio of current assets to current liabilities (the ability to pay current liabilities from current assets) decreased from 4.25 times in 2016 to 2.76 in 2017. Cash and cash equivalents ended the year at $4,284,430 which is an increase of $228,503 over the previous year. Despite the decrease in funding through budget cuts we were still able to keep the reserves at an adequate level. i
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Statement of Net Position The statements of net position present the assets, liabilities, and net position of the College at June 30, 2017. The purpose of the statements of net position is to present the financial condition of the College. The assets and liabilities are categorized between current and noncurrent. Noncurrent assets are externally restricted cash and investments restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other noncurrent assets, such as capital assets. Noncurrent liabilities include (1) principal amounts of revenue bonds payable, notes payable, and capital lease obligations with contractual maturities greater than one year; (2) estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fiscal year; or (3) other liabilities that although payable within one year, are to be paid from funds that are classified as noncurrent assets. Comparison of Assets Fiscal Year 2016 to 2017 Net assets are presented in three major categories. The first is invested in capital assets, net of related debt, which represents the College s equity in its property, plant, and equipment. The second is restricted and the third is unrestricted. The net position increased during the current fiscal year from $14,909,328 to $14,689,285 which was a $220,042 decrease. The net position for 2016 compared to 2017: Net Position 15,000,000 2016 14,800,000 2017 14,600,000 14,400,000 Total Net Position 2016 14,909,328 2017 14,689,285 ii
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 The College s current assets consist primarily of cash, short-term investments and accounts receivables, while noncurrent assets consist mainly of capital assets. The total breakdown of assets between current and noncurrent classification is as follows: Current & Non Current Assets $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ 2016 2017 Non Cur. Assets $11,927,169 $12,874,310 Current Assets $4,896,343 $3,511,993 Total assets decreased by $437,208 and the net position decreased by $220,042. TOTAL ASSETS Total Assets $16,823,512 $16,386,304 2016 2017 Of the $16,386,304 in total assets, approximately 26% is in cash and cash equivalents, receivables, and investments. Capital assets represent 68% of total assets. iii
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Comparison of Liabilities Fiscal Year 2016 to 2017 2016 % Total 2016 2017 % Total 2017 Current Liabilities $ 1,151,812 60.17% $ 1,269,083 74.78% Noncurrent $ 762,372 39.83% $ 427,935 25.22% Total Liabilities $ 1,914,184 100.00% $ 1,697,018 100.00% The liabilities are categorized between current and noncurrent. For example, the College s current liabilities consist primarily of accounts payable, accrued liabilities, deferred revenue and agency funds held for college clubs and organizations. The noncurrent liabilities portion is comprised of notes payable and capital leases payable. Comparison of Assets to Liabilities Assets & Liabilites $19,000,000 $17,000,000 $15,000,000 $16,823,512 $16,386,304 $13,000,000 $11,000,000 $9,000,000 Total Assets Total Liabilities $7,000,000 $5,000,000 $3,000,000 $1,000,000 $1,914,184 $1,697,018 2016 2017 Total liabilities decreased $217,166 from $1,914,184 in 2016 to $1,697,018 in 2017 while total assets decreased $437,208 from $16,823,512 to $16,386,304. The asset to liability ratio increased from 8.79 ($16,823,512/$1,914,814) in 2016 to 9.66 ($16,386,304/$1,697,018) in 2017. Assets exceeded liabilities by $14,689,285. iv
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Statement of Revenues, Expenses, and Changes in Net Position The statement of revenues, expenses, and changes in net position present the College s financial results for the fiscal year ending June 30, 2017. The statement includes the College s revenue and expenses, both operating and non-operating. Operating revenues and expenses are those for which the College directly exchanges goods and services. Non-operating revenues and expenses are those that exclude specific goods and services. Examples of non-operating revenues would be County property tax revenue and state aid; whereby local and state taxpayers do not directly receive goods and services from the College. Results of Operations Fiscal Year 2017 Revenue Components and sources of revenue: Labette Community College receives revenue from five major sources. They are: The State of Kansas; Federal Government (including Pell Grants); students, in the form of tuition and fees; local taxpayers, by way of property taxes; and through business style auxiliary enterprises. These sources are relatively stable year over year as a percentage of the total. 2016 % Total 2016 2017 % Total 2017 Student Revenue $1,310,681 9.75% $1,307,558 10.37% Federal $2,591,757 19.28% $2,635,152 20.9% State $3,417,650 25.42% $2,812,051 22.3% Auxiliary & Activity $543,451 4.04% $492,972 3.91% Property Tax $5,233,995 38.94% $5,162,223 40.94% Other $344,609 2.57% $199,895 1.58% Total Revenue $13,442,143 100.00% $12,609,851 100.00% v
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Revenue by Source for 2017 Other 1.58% Student 10.37% Property tax 40.94% Federal 20.9% Aux. & Activity 3.91% State 22.3% Expenditures Detail of the 2016 and 2017 Education and General expenditures: 2016 % Total 2016 2017 % Total 2017 Instruction $3,688,915 27.80% $3,724,386 29.03% Academic $534,857 4.03% $520,309 4.06% Support Student $1,222,246 9.21% $1,277,362 9.96% Services Institutional $4,213,925 31.74% $3,544,456 27.63% Support OP. & $1,206,926 9.09% $1,169,504 9.11% Maintenance Scholarships $1,099,133 8.28% $1,216,592 9.48% Depreciation/Lo $780,643 5.88% $830,110 6.47% ss on Sale of Assets Auxiliary $507,612 3.82% $534,158 4.16% Debt Service $21,487 0.16% $13,017 0.10% Total $13,277,760 100.00% $12,829,894 100.00% vi
Labette Community College Management s Discussion and Analysis For the year ended June 30, 2017 Expenses by Category 2017 Op & Maint 9.11% Institutional Support 27.63% Student Services 9.96% Academic Support 4.06% Instruction 29.03% Scholarships 9.48% Depreciation 6.47% Auxiliary 4.16% Debt Service.10% Statement of Cash Flows The statement of cash flows presents information about cash receipts and cash payments during the year. It helps assess the College s ability to generate net cash flows and to meet its obligations as they come due. The largest sources of cash from operating activities were student tuition and fees, federal financial aid, and sales and services of auxiliary enterprises. Major uses of cash were payments made to employees and vendors. In 2017 overall, cash and cash equivalents increased by $228,502 to $4,284,430. Capital Assets and Debt Administration During the year ended June 30, 2017, capital assets decreased $589,032 bringing the capital assets net of accumulated depreciation to $11,130,786. The college s long-term debt decreased $334,437 during fiscal year ending June 30, 2017 bringing the total debt down to $427,935. Summary of Overall Performance Labette Community College s financial condition was impacted by a number of factors in 2017 not limited to: State funding has been flat or diminishing for several years Beginning to recover from a period of declining enrollment The declining state of the Kansas economy Dwindling long term debt Through all of this the College s financial position has stayed at approximately the same level this past year. vii
JARRED, GILMORE & PHILLIPS, PA CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS REPORT Board of Trustees Labette Community College Parsons, Kansas Report on the Financial Statements We have audited the accompanying financial statements of Labette Community College, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Labette Community College s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the College s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Labette Community College, as of June 30, 2017, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. - 1 -
Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages i-vii be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Labette Community College s basic financial statements. The supplementary information, as listed in the table of content as pages 27 to 40, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The supplementary information and the schedule of expenditures of federal award are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. The fiscal year ended June 30, 2016 actual column presented in the individual fund schedules of regulatory basis receipts and expenditures actual and budget (Schedules 3 to 7 as listed in the table of contents) is also presented for comparative analysis and is not a required part of the June 30, 2017 basic financial statement upon which we rendered an unmodified opinion dated December 17, 2016. The June 30, 2016 basic financial statement and our accompanying report are not presented herein, but are available in electronic form from the web site of the Kansas Department of Administration at the following link http://admin.ks.gov/offices/chief-financial-officer/municipalservices. Such June 30, 2016 comparative information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the June 30, 2016 basic financial statement. The June 30, 2016 comparative information was subjected to the auditing procedures applied in the audit of the June 30, 2016 basic financial statement and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the June 30, 2016 basic financial statement or to the June 30, 2016 basic financial statement itself, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the June 30, 2016 comparative information is fairly stated in all material respects in relation to the June 30, 2016 basic financial statement as a whole. - 2 -
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 28, 2017, on our consideration of Labette Community College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Labette Community College s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Labette Community College s internal control over financial reporting and compliance. Chanute, Kansas November 28, 2017 JARRED, GILMORE & PHILLIPS, PA Certified Public Accountants - 3 -
LABETTE COMMUNITY COLLEGE Parsons, Kansas Statement of Net Position June 30, 2017 Primary Component Unit Institution - Foundation ASSETS Current Assets Cash and Cash Equivalents $ 2,540,906.20 $ 1,202,860.03 Accounts Receivable, Net 530,268.40 3,137.52 Inventories 306,405.60 - Investments - 238,336.60 Prepaid Expenses 134,413.00 - Unconditional Promises to Give - 126,100.00 Total Current Assets 3,511,993.20 1,570,434.15 Noncurrent Assets Cash and Cash Equivalents 1,743,523.99 - Capital Assets, Net of Accumulated Depreciation 11,130,786.33 1,013,588.56 Unconditional Promises to Give - 63,050.00 Total Noncurrent Assets 12,874,310.32 1,076,638.56 TOTAL ASSETS $ 16,386,303.52 $ 2,647,072.71 LIABILITIES AND NET POSITION LIABILITIES Current Liabilities Accounts Payable $ 195,854.02 $ - Accrued Wages 245,381.60 - Accrued Interest - 14,757.99 Deferred Revenue 374,373.51 - Grant Advance - - Compensated Absences 298,069.13 - Deposits Held in Custody for Others 155,404.79 24,183.89 Total Current Liabilities 1,269,083.05 38,941.88 Noncurrent Liabilities Notes Payable - 432,468.70 Capital Lease Payable 427,935.25 - Total Noncurrent Liabilities 427,935.25 432,468.70 TOTAL LIABILITIES 1,697,018.30 471,410.58 NET POSITION Investment in Capital Assets, Net of Related Debt 10,702,851.08 - Restricted- Expendable: Other Temporarily Restricted - 1,562,332.63 Restricted- Nonexpendable - 601,756.84 Unrestricted 3,986,434.14 11,572.66 TOTAL NET POSITION 14,689,285.22 2,175,662.13 TOTAL LIABILITIES AND NET POSITION $ 16,386,303.52 $ 2,647,072.71 The accompanying notes are an integral part of the financial statements. - 4 -
LABETTE COMMUNITY COLLEGE Parsons, Kansas Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2017 Primary Institution REVENUES Operating Revenues Student Tuition and Fees, (net of scholarship discounts and allowances of $843,637.00) 1,307,557.54 Component Unit - Foundation $ $ - Federal Grants and Contracts 637,019.88 - State Grants and Contracts 41,380.00 - Sales and Services of Auxiliary Enterprises 492,972.27 - Activity Fund Revenues 96,302.95 - Miscellaneous Operating Income 62,892.79 121,000.00 Total Operating Revenues 2,638,125.43 121,000.00 EXPENSES Operating Expenses Educational and General Instruction 3,724,385.72 - Academic Support 520,308.89 - Student Services 1,277,362.30 - Institutional Support 3,544,456.18 32,173.34 Operation and Maintenance 1,169,503.51 219,209.17 Scholarships, Grants and Awards 1,216,592.00 117,071.00 Fundraising - 42,888.70 Auxiliary Enterprises 534,158.07 - Depreciation Expense 774,970.42 84,436.89 Total Operating Expenses 12,761,737.09 495,779.10 Operating Income (Loss) (10,123,611.66) (374,779.10) Nonoperating Revenues (Expenses) State Appropriations 2,770,671.00 - County Appropriations 5,162,223.07 - Federal Pell Grants 1,998,132.00 - Gifts and Contributions 36,173.34 443,818.23 Investment Income 4,526.19 (1,638.04) Gain (Loss) on Sale of Assets (55,139.58) - Debt Service (13,016.79) - Net Nonoperating Revenues (Expenses) 9,903,569.23 442,180.19 Increase (Decrease) in Net Position (220,042.43) 67,401.09 Net Position - Beginning of Year 14,909,327.65 2,108,261.04 Net Position - End of Year $ 14,689,285.22 $ 2,175,662.13 The accompanying notes are an integral part of the financial statements. - 5 -
LABETTE COMMUNITY COLLEGE Parsons, Kansas Statement of Cash Flows For the Year Ended June 30, 2017 Primary Component Unit Institution - Foundation CASH FLOWS FROM OPERATING ACTIVITIES Student Tuition and Fees $ 1,346,668.04 $ - Federal Grants and Contracts 637,019.88 - State Grants and Contracts 41,380.00 - Sales and Services of Auxiliary Enterprises 492,972.27 - Activity Fund Revenues 96,302.95 - Miscellaneous Income 62,892.79 121,000.00 Payments on Behalf of Employees (8,098,387.82) - Payments for Supplies and Materials (458,889.33) - Payments for Other Expenses (3,274,650.15) (347,057.53) Net cash provided by (used in) operating activities (9,154,691.37) (226,057.53) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 2,770,671.00 - County Appropriations 5,162,223.07 - Federal Pell Grant 1,998,132.00 - Federal Direct Loans 1,481,216.00 - Federal Direct Loans Payments (1,481,216.00) - Gifts and Contributions 36,173.34 521,436.66 Net cash provided by (used in) noncapital financing activities 9,967,199.41 521,436.66 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Payments for Purchase of Capital Assets (241,078.28) - Interest Paid on Long Term Debt (13,016.79) - Principal Payments on Long Term Debt (334,436.61) (96,674.11) Net cash provided by (used in) capital financing activities (588,531.68) (96,674.11) CASH FLOWS FROM INVESTING ACTIVITIES Interest Earned on Investments 4,526.19 7,795.12 Purchase of Investments - (88,703.77) Proceeds from Investments Sold - 101,442.66 Payments Received from Notes Receivable - - Net cash provided by (used in) investing activities 4,526.19 20,534.01 Net Increase (Decrease) in Cash and Cash Equivalents 228,502.55 219,239.03 Cash and Cash Equivalents, Beginning of Year 4,055,927.64 983,621.00 Cash and Cash Equivalents, End of Year $ 4,284,430.19 $ 1,202,860.03 The accompanying notes are an integral part of the financial statements. - 6 -
LABETTE COMMUNITY COLLEGE Parsons, Kansas Statement of Cash Flows For the Year Ended June 30, 2017 Primary Institution Component Unit - Foundation RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES Operating Income (Loss) $ (10,123,611.66) $ (374,779.10) Adjustments to Reconcile Change in Net Position to Net Cash Used in Operating Activities: Depreciation Expense 774,970.42 84,436.89 Non-cash Donations - 122,471.64 (Increase) Decrease in Receivables 22,017.89 - (Increase) Decrease in Prepaid Expenses (16,133.90) - (Increase) Decrease in Inventory 70,794.87 - Increase (Decrease) in Accounts Payable 45,475.34 - Increase (Decrease) in Accrued Wages (17,685.42) - Increase (Decrease) in Accrued Interest - - Increase (Decrease) in Deferred Revenue 17,092.61 (3,299.01) Increase (Decrease) in Grant Advance - - Increase (Decrease) in Compensated Absences 25,288.19 - Increase (Decrease) in Deposits Held for Others 47,100.29 (144.27) Net cash provided by (used in) operating activities $ (9,154,691.37) $ (171,313.85) RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and Cash Equivalents classified as current assets $ 2,540,906.20 $ 1,202,860.03 Cash and Cash Equivalents classified as noncurrent assets 1,743,523.99 - Total Cash and Cash Equivalents $ 4,284,430.19 $ 1,202,860.03 Supplemental Information Cash Paid During the Period for: Interest Expense $ 13,016.79 $ 24,081.67 Non-Cash Donations: Management and General $ - $ 84,436.89 Items for Annual Auction - 38,034.75 Supplies for College Programs - - The accompanying notes are an integral part of the financial statements. - 7 -
LABETTE COMMUNITY COLLEGE Parsons, Kansas Notes to the Financial Statements For the Year Ended June 30, 2017 1. NATURE OF ACTIVITIES The financial statements of Labette Community College, Parsons, Kansas, have been prepared in accordance with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board is the principal standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the College's accounting policies follow. Reporting Entity The financial reporting entity consist of the primary government, organizations for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion could cause the financial statements to be misleading or incomplete. Component Unit The component unit section of the financial statements includes the financial data of the discretely presented component unit, the Labette Community College Foundation and Alumni Association. The component unit is reported separately to emphasize that it is legally separate from the College. The economic resources received or held by the component unit are held almost entirely for the direct benefit of the College. The Labette Community College Foundation and Alumni Association was formed to promote and foster the educational purposes of the College, and to create a fund to be used for any program, project or enterprise undertaken in the interest of the College. The Foundation acts largely as a fundraising organization, soliciting, receiving, managing and disbursing contributions on behalf of the College. Most of the contributions received are designated by the donors to be used for specific purposes or by specific departments. In these instances, the Foundation serves essentially as a conduit. Contributions that are not designated are used where the need is considered greatest, as determined by the Foundation board of directors. The Foundation can sue and be sued, and can buy, sell, or lease real property. The Foundation s financial statements should be included with the College s financial statements. Separate audited financial statements are prepared and are available at the Foundation, and can be requested from the College s controller. The Foundation is considered a component unit. The College s component unit is a private not-for-profit organization that reports under FASB standards. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the component unit s financial information in the College s financial report for these differences. The component unit s financial data has, however, been aggregated into like categories for presentation purposes. - 8 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College s financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. Cash and Cash Equivalents For purposes of the statement of cash flows, the College considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Investments The College accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statement of revenues, expenses, and changes in net assets. Accounts Receivable and Deferred Revenue Accounts receivable consist of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Kansas. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the College s grant and contracts. Accounts receivable also include taxes in process of collection for property taxes assessed and collected for the calendar year ending December 31, 2016. In accordance with governing state statutes, property taxes levied during the current year are a revenue source to be used to finance the budget of the ensuing year. Taxes are assessed on a calendar year basis and become a lien on the property on November 1st of each year. The County Treasurer is the tax collection agent for all taxing entities within the County. Property owners have the option of paying one-half or the full amount of the taxes levied on or before December 20th during the year levied with the balance to be paid on or before May 10th of the ensuing year. State statutes prohibit the County Treasurer from distributing taxes collected in the year levied prior to January 1st of the ensuing year. Consequently, for revenue recognition purposes, taxes levied during the current year are not due and receivable until the ensuing year. Property taxes levied in December 2016 are recorded as taxes receivable. Approximately 2% to 7% of these taxes are normally distributed after June 30, 2017, and are presented as accounts receivable taxes in process and deferred revenue to indicate that they are not appropriable. It is not practicable to apportion delinquent taxes held by the County Treasurer at the end of the year and, further, the amounts thereof are not material in relationship to the financial statements taken as a whole. Inventories Inventories consist of books and supplies held for resale in the bookstore and are valued at cost, using the first-in, first-out method (FIFO). Noncurrent Cash and Cash Equivalents Cash and cash equivalents that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other noncurrent assets, are classified as noncurrent assets in the statement of net assets. - 9 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets Capital assets are stated at cost at the date of acquisition, or fair value at the date of donation in the case of gifts. For equipment, the College s capitalization policy includes all items with a unit cost of $2,500.00 or more, and an estimated useful life of greater than one year. Renovations to building, infrastructure, and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is provided on straight-line method over the estimated useful lives of the respective classes of property. Estimated useful lives are as follows: Buildings Building Improvements Furniture Vehicles Equipment, including computers 35 Years 20 Years 10 Years 5-7 Years 3-7 Years Accounts Receivable and Allowance for Doubtful Accounts The College regularly extends unsecured credit to various students. The College uses the allowance method to account for uncollectible accounts receivable. Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued vacation payable in the statement of net assets, and a component of compensation and benefit expense in the statement of revenues, expenses, and changes in net assets. Noncurrent Liabilities Noncurrent liabilities include (1) principal amounts of revenue bonds payable, notes payable, and capital lease obligations with contractual maturities greater than one year; (2) estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fiscal year; or (3) other liabilities that although payable within one year, are to be paid from funds that are classified as noncurrent assets. Net Position The College s net position are classified as follows: Invested in Capital Assets, Net of Related Debt: This represents the College s total investment in capital assets, net of accumulated depreciation, and outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of investment in capital assets, net of related debt. Restricted Net Position Expendable: Restricted expendable net position include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Restricted Net Position Nonexpendable: Nonexpendable restricted net position consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. - 10 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Position (Continued) Unrestricted Net Position: Unrestricted net position represent resources derived from student tuition and fees, state appropriations and sales and services of educational departments and auxiliary enterprises. These resources are used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty, and staff. When an expense is incurred that can be paid using either restricted or unrestricted resources, the College s policy is to first apply the expense towards restricted resources, and then towards unrestricted resources. Income Taxes The College, as a political subdivision of the State of Kansas, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. The Foundation is exempt from income taxes under Section 501(C)(3) of the Internal Revenue Code. Classification of Revenues The College has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales of services of auxiliary enterprises, net of scholarship discounts and allowances, and (3) most Federal, state and local grants and contracts, and Federal appropriations. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Government Entities that use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the statements of revenues, expenses, and changes in net assets. Scholarship discounts and allowances are the difference between the stated charge and the goods and services provided by the College, and the amount that is paid by students and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the College s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded a scholarship discount and allowance. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - 11 -
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Pension Plan Substantially all full-time College employees are members of the State of Kansas Public Employees Retirement System which is a multi-employer state-wide pension plan. The College's policy is to fund all pension costs accrued; such costs to be funded are actuarially determined annually by the State. Budgetary Information Kansas statutes require that an annual operating budget be legally adopted for current funds - unrestricted and plant funds (unless specifically exempted by statute). The statutes provide for the following sequence and timetable in the adoption of the legal annual operating budget: 1. Preparation of the budget for the succeeding fiscal year on or before August 1st. 2. Publication in local newspaper of the proposed budget and notice of public hearing on the budget on or before August 5th. 3. Public hearing on or before August 15th, but at least ten days after publication of notice of hearing. 4. Adoption of the final budget on or before August 25th. The statutes allow for the governing body to increase the originally adopted budget for previously unbudgeted increases in revenue other than ad valorem property taxes. To do this, a notice of public hearing to amend the budget must be published in the local newspaper. At least ten days after publication the hearing may be held and the governing body may amend the budget at that time. There were no such budget amendments for this year. The statutes permit transferring budgeted amounts between line items within an individual fund. However, such statutes prohibit expenditures in excess of the total amount of the adopted budget of expenditures of individual funds. Annual operating budgets are prepared using the cash basis of accounting, modified further by the recording of accounts payable and encumbrances. Revenue is recognized when cash is received. Expenditures include cash disbursements, accounts payable, and encumbrances. Encumbrances are commitments by the municipality for future payments and are supported by a document evidencing the commitment, such as a purchase order or contract. All unencumbered appropriations (legal budget expenditure authority) lapse at year-end. A legal operating budget is not required for a Current Fund Agency Funds. Spending in funds which are not subject to the legal annual operating budget requirement are controlled by federal regulations, other statutes, or by the use of internal spending limits established by the governing body. 3. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Compliance with Kansas Statutes Supplementary Schedules 3 to 7 have been prepared in order to show compliance with the cash basis and budget laws of Kansas. Based upon these schedules, the College was in apparent compliance with Kansas cash basis and budget laws. - 12 -
4. DEPOSITS Primary Institution: K.S.A 9-1401 establishes the depositories which may be used by the College. The statute requires banks eligible to hold the College s funds have a main branch or branch bank in the county in which the College is located and the bank provide an acceptable rate of return on funds. In addition, K.S.A. 9-1402 requires the banks to pledge securities for deposits in excess of FDIC coverage. The College has no other policies that would further limit interest rate risk. K.S.A 12-1675 limits the College s investment of idle funds to time deposits, open accounts, and certificates of deposit with allowable financial institutions; U.S. Government securities; temporary notes; no-fund warrants; repurchase agreements; and the Kansas Municipal Investment Pool. The College has no investment policy that would further limit its investment choices. Concentration of credit risk. State statutes place no limit on the amount the Government may invest in any one issuer as long as the investments are adequately secured under K.S.A. 9-1402 and 9-1405. Custodial credit risk deposits. Custodial credit risk is the risk that in the event of a bank failure, the College s deposits may not be returned to it. State statutes require the College s deposits in financial institutions to be entirely covered by federal depository insurance or by collateral held under a joint custody receipt issued by a bank within the State of Kansas, the Federal Reserve Bank of Kansas City, or the Federal Home Loan Bank of Topeka. All deposits were legally secured at June 30, 2017. At year-end, the College s carrying amount of the deposits was $4,278,330.88 and the bank balance was $4,529,881.55. The bank balance was held by one bank resulting in a concentration of credit risk. Of the bank balance, $250,000.00 was covered by FDIC insurance and $4,279,881.55 was collateralized with pledged securities held by the pledging financial institutions agents in the College s name. Component Unit: At year-end, the Foundation s carrying amount of the deposits including certificates of deposit was $1,202,860.03 and the bank balance was $1,202,806.07. The bank balance was held by three banks and one investment company resulting in a concentration of credit risk. Of the bank balance, $1,195,222.92 was covered by FDIC insurance and the remaining amount $7,583.15 was covered by SIPC. 5. INVESTMENTS Component Unit: Investment Policy The Primary objective of the Foundation s investment policy is to provide for long-term growth of principal and income within reasonable risk on continuing and consistent basis. Emphasis shall be on maintaining growth of assets, net of inflation and fees. Over a period of time, the minimum goal for the total return of the fund should be the current rate of inflation plus 3 to 7%. The investment objective requires a disciplined and consistent management philosophy. The objectives do not call for a philosophy which represents extreme positions or opportunistic styles. The portfolio shall be diversified with both fixed income and equity holdings. The purpose of such diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact of the total portfolio. - 13 -
5. INVESTMENTS (Continued) Component Unit: Investment Policy (Continued) Investments are made under the direction of the Board of Directors. Equity investments and other investments are recorded at fair values subject to comments on Investments under the summary of accounting policies. Investments at June 30, 2017 are comprised of the following: Investment Fair Value Corporate Bonds $ 165,996.88 U.S. Treasury Securities 72,339.72 $ 238,336.60 6. FAIR VALUE MEASUREMENTS Component Unit: The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows: Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Foundation has the ability to access. Level 2. Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2017. U.S. government securities: Valued using pricing models maximizing the use of observable inputs for similar securities. - 14 -
6. FAIR VALUE MEASUREMENTS (Continued) Component Unit (Continued) Corporate Bonds: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing the value on yields currently available on comparable securities of issuers with similar credit rates. June 30, 2017 Level 1 Level 2 Level 3 Total Corporate Bonds $ - - $ 165,996.88 $ - - $ 165,996.88 U.S. Treasury Securities - - 72,339.72 - - 72,339.72 Totals $ - - $ 238,336.60 $ - - $ 238,336.60 7. ACCOUNTS RECEIVABLE, NET Accounts receivable at June 30, 2017, consisted of the following: Primary Institution Current: Taxes in Process $ 312,259.71 Federal Grants 40,077.00 Student Accounts 173,843.31 Bookstore Credits 4,088.38 Total Current $ 530,268.40 The College uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for uncollectible accounts of $1,616,501.66 at June 30, 2017. 8. INVENTORIES Inventories consisted of the following at June 30, 2017: Book Store Inventory Labette Retail $ 165,453.21 Labette Rentals 74,228.95 Cherokee Retail 26,539.70 Cherokee Rentals 33,027.26 Food Service 7,156.48 $ 306,405.60-15 -